May 2010 Issue

Civil Cases

Au-Tomotive Gold Inc. v. Volkswagen of Am., Inc.,
2010 WL 1794018 (9th Cir. May 6, 2010)

ABSTRACT
The Ninth Circuit held that plaintiff’s sale of marquee license plates–plain license plates to which defendant attached authentic Volkswagen badges–was not protected by the “first sale” doctrine.  In analyzing plaintiff’s first–sale defense, the Ninth Circuit found trademark infringement based on post–sale confusion.  The court noted that its decision was not based on a likelihood of confusion among purchasers of the plates.  Rather, its decision was based on the likelihood of post–purchase confusion among observers who see the plates on cars after the plates have been purchased.

CASE SUMMARY

FACTS
Au-Tomotive Gold, Inc. (“Auto Gold”) sold marquee license plates bearing authentic Volkswagen badges purchased from Volkswagen of America, Inc. (“Volkswagen”).  Auto Gold created the marquee license plates by altering “VW” badges ordinarily used as replacements for badges found on the hoods or trunks of Volkswagen vehicles and mounting them on plain license plates.  The plates were then packaged with labels that explained that the plates were not produced or sponsored by Volkswagen.

Auto Gold originally filed suit seeking a declaratory judgment that its actions did not constitute trademark infringement.  After an initial decision by the district court and a reversal and remand by the Ninth Circuit, the district court considered Auto Gold’s defense that its sales of the marquee license plates were protected under the first-sale doctrine.  The district court rejected this defense and granted summary judgment for Volkswagen.

ANALYSIS
The first–sale doctrine protects the seller of trademarked products in the resale of those products when consumers will not be confused as to the products’ source or sponsorship. The Ninth Circuit noted that the first–sale doctrine has traditionally focused on the likelihood of confusion among purchasing consumers, and cases have recognized the principle that the right of a producer to control distribution of its trademarked product does not extend beyond the first sale of the product.  In cases where a party incorporates the trademarked product of another into a new product, courts have generally found that the first–sale defense applies when the resulting new product is adequately marked to indicate its source and to avoid confusion among purchasing consumers.  Thus, the application of the first–sale doctrine ultimately turns on the issue of likelihood of confusion.

The court also looked to post–sale confusion cases and noted that post–sale confusion could serve as the basis for trademark infringement regarding refurbished products.  Although the post–sale cases on which the court relied did not address the first–sale doctrine specifically, “they establish[ed] that activities creating a likelihood of post–purchase confusion, even among non–purchasers, are not protected.”

Applying these related lines of cases, the court concluded that it was likely that a person on the street who sees an Auto Gold marquee license plate with a VW badge will associate the plate with Volkswagen.  Indeed, the court reasoned that customers buy marquee license plates principally to demonstrate to the general public an association with Volkswagen.  And the court found that Auto Gold’s disclaimer on the packaging of its marquee plates did nothing to dispel this post–purchase confusion.

Auto Gold argued that confusion among nonpurchasers is irrelevant in cases involving the first–sale defense.  The court rejected this position, however, explaining that in each case where a court has applied the first–sale doctrine, the court either had good reason not to be concerned with post–purchase confusion or took steps to avoid addressing the issue.

Auto Gold also contended that in first–sale defense cases, the “element of ‘free-riding’ present in other post–purchase confusion cases disappears because the producer has paid the price asked by the trademark owner for the ‘ride.’” The court rejected this argument as well, reasoning that “[w]hen a producer purchases a trademarked product, that producer is not purchasing the trademark.  Rather, the producer is purchasing a product that has been trademarked.  If a producer profits from a trademark because of post–consumer confusion about the product’s origin, the producer is, to that degree, a free-rider.”  The court concluded that “customers buy marquee license plates principally to demonstrate to the general public an association with Volkswagen.”

The court also rejected Auto Gold’s argument that there was no trademark infringement because its products were of high quality.  The court noted that the central question is likelihood of confusion, not quality control.  Additionally, the court held that the promotion of competition could not serve to defend Auto Gold’s infringing activity.

CONCLUSION
Generally, consumer confusion may be avoided in first-sale cases involving the incorporation of a trademarked product into a new product with a disclaimer or explanation provided at the point of sale of the resulting modified product.  However, because such disclaimers are generally not seen by nonpurchasing observers of products post–sale, the likelihood of post–sale confusion may render the defense inapplicable in some cases.